Property Law Update – July 2009
We draw your attention to the findings of a recent case. The case has important ramifications for all shop centre owners and managers and should be kept in mind when negotiating leases.
The two main warnings from this decision are
1. Space Licences (eg storage or car park) may be deemed to be retail shop leases.
2. These licenses may be separately assigned independently of the primary lease.
A Retail Shop Leases and Licences
A recent decision in the ADT reinforces earlier NSW court decisions that a licence granted for use of space by a retail shop business will itself be a retail shop leaseand will be subject to all the provisions of the Retail Leases Act 1994 (NSW) – including the minimum five year term and the lessee’s rights to assign (as examples).
Global Hospitality Acquisitions v Owners Corporation SP31748
The case, Global Hospitality Acquisitions Pty Ltd v Owners Corporation SP31748  NSWADY 130 illustrates how a short term lease and a car park/ storage licence can be deemed a retail shop lease. In addition to its primary lease, the tenant, a restaurateur, had a short-term lease over common property (owned by the body corporate) for use as a kitchen and food preparation area, and also had a licence over two car spaces in separate lots to the premises which were used as storage space for the business.
Both the kitchen area and the car spaces were deemed to be retail shop leasesbecause they were “wholly or predominantly” used for the carrying on of the business of the primary lease and were an integral rather than ancillary part of that business. The tribunal was not swayed by the possibility that the car spaces were capable of non-business uses because the evidence showed they were only used for business purposes. Nor was the tribunal concerned that the licence deed didn’t contemplate using the parking spaces for storage space because that had always been the parties’ actual intention.
Implications of the Case
Lessor’s should ensure that section 16(3) certificates are obtained for short term licences and be aware that the tenant may assign a license following the procedure outlined in the Act, without assigning its lease. A Lessor may not prevent an independent assignment of a licence even if the licence prohibits assignment – the Retail Leases Act would override such a prohibition. It would be best for the Lessor to ensure that all area licenses are contained in the primary lease and not granted separately.(The earlier NSW court decisions referred to were Manly Council v Malouf 61 NSWLR 394 and Moweno Pty Ltd v Stratis Promotions Pty Ltd  NSWSC1151.)